September has traditionally been a rocky month for equity markets, and this year appears to be no exception.
Wall Street’s main indices – which have overwhelming influence over global markets – continued their slide, weighed down by concerns over stubbornly high Covid-19 infection numbers and uncertainties over policymakers’ next moves, which could potentially impact market liquidity and sentiment.
The Dow Jones index had its third straight week of losses to end at 34,584.88 points, for a 0.07 per cent loss over the five days. Over the past month, this marquee index is down 1.52 per cent, though it is still up 13 per cent year to date.
The S&P 500, which captures a broader spectrum of the market, ended 0.57 per cent down for the week at 4,432.99, while the tech-heavy Nasdaq gave up 0.47 per cent to end the week at 15,043.97.
In Singapore, the liquidity-starved Straits Times Index (STI) slid 27.57 points or 0.9 per cent for the week to 3,071.23.
The STI is a diversified benchmark and while it was down almost 1 per cent on the week, performances ranged from City Developments gaining 8.7 per cent to $7.25, to Yangzijiang Shipbuilding declining 8.1 per cent to $1.48.
While many stocks aligned to the China market were weighed down, City Development’s Sept 10 announcement of its divestment of its entire stake in Sincere Property Group was well received by the market.
The week’s decline brought the STI’s total return this month to 0.5 per cent.
Ahead of the FTSE indices rebalancing on the Friday close that impacted local stocks, Singtel, CapitaLand, iFast, SPH, Mapletree Commercial Trust, Hongkong Land, Ascendas Reit, Mapletree Logistics Trust, OCBC and AEM have seen the most net institutional inflows for the September month to date.
Meanwhile Yangzijiang Shipbuilding, SIA, Wilmar, UOB, SGX, CapitaLand Integrated Commercial Trust, ComfortDelGro, Suntec Reit, ST Engineering and Genting Singapore saw the most net institutional outflows.
These flows have not maintained too much of a correlation with macro developments of global sector performances for the past three weeks, which have seen energy and semiconductor stocks lead, while mining, real estate and media stocks have lagged.
Globally, investors are also nervous because global equities have doubled in value since bottoming in March last year, and so far this year, we have not seen a meaningful correction for the MSCI World Index, whereas last year, the index corrected by 6 per cent to 8 per cent on three occasions. In comparison, the corrections this year have been very shallow, ranging between 2 per cent and 4 per cent.
So is the market looking frothy?
Mr Vasu Menon, executive director for investment strategy at OCBC Wealth Management, is somewhat sanguine about the market’s medium-term outlook.
“In fact we are moderately positive and see more upside in the medium term, even though the easy money is behind us and volatility looks set to rise,” he said.
“The healthy level of scepticism, as reflected by the sizeable idle cash on the sidelines, should be a positive for markets because investors looking for buying opportunities could put the cash to work in a bigger way once the inflation and infection figures start to ease.”
He added: “Historically, September has been a difficult month for stock markets and this is likely to be the case this month as well. Investors need to brace themselves for a bumpy ride, not just in September but possibly in the coming months as central banks and governments reduce policy stimulus gradually.”
Many analysts also blame the “quadruple witching”, which occurred last Friday, for the volatility that occurs in September. This is the expiration of stock index futures, stock index options, stock options and single-stock futures.
The volatility is likely to persist over the coming month amid concerns about the pandemic and uncertainties over policy directions, especially by the Federal Reserve.
The Fed meets on Wednesday and Thursday, and could give further clues as to when it will start putting the brakes on its US$120 billion (S$162 billion) a month bond purchases that have pumped liquidity into the economy (and equity markets), but also fuelled inflationary pressures.
Most analysts expect the tapering to start by the year end.
Besides the United States, the week ahead will also see central bank meetings in Britain, Indonesia, Brazil and Turkey. Apart from these meetings, the purchasing managers’ indexes for September for the US, euro zone and Japan are due later this week. They will be closely watched to see if the economic reflation is on track.
While the current volatility presents risks, it also offers opportunities to the agile investor. The trick is to learn, watch, wait and pounce on the opportunities.
Source: The Staits Times